Tax system: India vs. Other Countries

Is Income Tax in India higher than in other countries?

Are taxes too high in India? Or is the ambit of service tax creating such an impression? Rarely will a country have a single tax rate, as principles of public economics are based on the ability of the consumer to pay tax. In some other countries, taxmen take more than half of the individual's earnings but provide security to the citizens in return. India is among the top 10 countries where citizens pay corporate taxes, but India's tax to GDP ratio is relatively low compared to other countries.

What is the taxation system in India; how is it compared to the system of other countries? The tax system around the globe is mainly divided into direct and indirect taxes. Direct tax is a tax in which the incidence and impact of taxation are on the same person. For example, income tax or corporate tax is borne and paid by the same person. The same person collects the tax amount, files the return, and pays the amount due before the last date. An indirect tax is a tax where incidence and impact fall on different people. For example, tax paid on commodities, the burden to pay tax falls on the consumers. Under the indirect tax, the buyer of the goods bears the tax, and the seller has to forward it to the government by filing the return before the prescribed date—the seller acts as the intermediary between the consumer and the government. The income tax slab is as follows.

Goods And Service Tax

On July 1, 2017, India's Government implemented Goods and Service Tax (GST). The motto behind introducing GST in India was 'One Nation, One tax'. It is a destination-based, multistage, comprehensive indirect tax model introduced to regularise India's indirect taxation. However, the Goods and Service Tax concept is not new to the world. The French government became the first country to bring this system into effect in the 1950s. The GST adopted by France is different from the system adopted by India and other countries. Apart from India, various other countries like New Zealand, Australia, and Canada have shifted to a unified taxation policy.

The rules and regulations for GST are made by the GST council, and the Finance Minister controls the GST council. There are five rate slabs that come under GST- 0%, 5%, 12%, 18% and 28%. For instance, if your income tax slab is 165000, you fall under 0% GST. However, many goods fall under 12% and 28% slab rate, making revenue for state and central government. There are three kinds of GST taxes:

• IGST: It is for interstate sales, revenue collected by state and centre.
• SGST: It is for intra-state sale, and revenue is collected by the state.
• CGST: It is for intra-state sale, and revenue is collected by the centre.

GST in India vs. Other Countries

More than 160 countries have introduced the GST taxation scheme. There are about 40 different models of GST running through different economies and include various rules and regulations. Let us look at the GST implementation in other economies compared to the implementation in India.

1. GST Singapore Vs. GST India

Singapore has been following a single and consistent GST system on purchases. In 1994, the Singapore government introduced GST in the country at the rate of 3 per cent, the lowest GST in the market. However, the country increased the GST rate in 2007 to 7 per cent. This rate of GST is still significantly lower compared to the rates in India.

2. GST New Zealand Vs. GST India

In 1986, the country first implemented GST, and it levied taxes on every single item at the rate of 10 per cent. In 2010, the government increased the tax slab of GST to 15 per cent applicable to every purchase. However, there is no GST on financial services and residential rent. The country allows a business to recover GST as an input cost.

3. GST China Vs. GST India

In China, GST is charged on goods, and the conditioned provision of repairs and replacement assisted services. It means GST in China is collected on manufacturing. Other fixed asset goods and services are not considered under recoverable items. In China, the three tax slabs are - 0%, 5% and 19%.

4. GST Indonesia Vs GST India

The exports in Indonesia are exempt from GST and VAT, whereas the imports in China are subject to tax. If the services are supplied out of Indonesia, the tax rate is 10 per cent for foreign taxpayers, and other items are taxed at the rate of 20 per cent, capped at thirty-five per cent. However, the luxury tax on imports ranges from 10 to 50 per cent. Items not subject to VAT include gold, mining products, education, insurance, public transport, labour, hotel, health, food and beverages, and arts and entertainment.

5. GST Canada Vs. GST India

The Canadian GST model has a taxation regime categorised under three schemes- joint federal, federal GST, and separate federal. Federal tax is a widely accepted tax system. In contrast, the joint federal tax system runs on the synchronising behaviour of state and economy. A separate federal tax system applies to Quebec. In Canada, the GST rate on supplies of goods and services is about 5 per cent, while the harmonised sales tax in some provinces is 15 per cent.

6. GST Australia Vs. GST India

The far shore Australia has a federal GST tax system. The federal taxation system is one where tax is collected by the supreme authority and further divided between the states systematically without conflict. The first GST in Australia was introduced in the year 2000 at a rate of 10 per cent, and this rate is still applicable in the country.

7. GST Brazil Vs GST India

The GST model in Brazil is lenient compared to the taxation models of other countries. There is a dividing rule of taxation in the country between centre and state. There are six tax slabs in Brazil that include 0%, 1.65%, 2%, 7%, 12%, and 17%.

8. GST France Vs. GST India

In the year 1954, France first implemented the GST system with four tax rate slabs. The tax rate slabs were 2.1%, 5.5%, 10% and 20%. Out of these tax rates, 20 per cent is the standard rate applicable to most of the country's goods.

9. GST Malaysia Vs GST India

With effect from April 1, 2015, GST has been implemented in the country at 6 per cent. However, the sales tax and service tax are categorised differently, at 10% and 6%, respectively. Items exempt from GST in Malaysia include piped water, transportation services, the first 200 units of electricity every month, health service, and highway toll.

10. GST UK Vs. GST India

There are three tax rate slabs in the UK - 0%, 5%, and 20%. Many goods and services come under the tax slab of 20%. However, property, postage stamps, food items, and children's clothing are exempt from GST.

We find that the GST implementation pattern in various countries is comparable. However, unlike India, other countries have a high GST threshold that reduces small business owners' burden. Small businesses in India face some challenges in this area.

Also read:

1) What Happens to Indian's Tax Money after Payment?
2) Top-10 Highest Tax Paying States in India
3) Why Do We Pay Income Tax in India? Importance, Applicability & more
4) Types of Direct & Indirect Taxes in India